Arm “tests the value of market monopoly” as it announces change in pricing policy

Arm, which has chips in over 95% of smartphones, is reportedly looking to increase profits in an attempt to entice investors.

The group, acquired in 2016 by Japan’s SoftBank for £24.3 billion, is expected to launch an initial public offering later this year on the New York Stock Exchange.

One senior employee who parted with the firm last year told the Financial Times: “Arm is going to customers and saying: ‘We would like to get paid more money for broadly the same thing’ … What SoftBank is doing at the moment is testing the market value of the monopoly that Arm has.”

Arm does not manufacture its own chips, but instead licences its IP to other companies, who then use it to design and manufacture their own processors. Companies such as Apple, Nvidia, Qualcomm and Samsung.

The ARM monopoly

Arm’s designs are popular for their combination of low power consumption and high performance. This makes them well-suited both for mobile devices (including tablets) and IoT (Internet of Things) hardware.

Based on sales figures in the quarter ending September 2022, Arm sells around 32 billion ARM chips each year. Even a small change in pricing strategy would result in large increase in profits.

Not that Arm is doing badly right now. Its 2021 profits totalled $2.7 billion, up 35% from the previous year. And its most recent financial results, published last month, show its total revenue was up by 28%.

Arm’s rumoured new business model being will target smartphone manufacturers in particular. Crucially, it will be based on the average selling price (ASP) of devices instead of the price of the chips.

Apple, however, will be exempt from the changes, as it has a pre-existing royalty arrangement with Arm.

Customer reaction

According to sources familiar with the proposed changes, Xiaomi, Oppo, Unisoc, Qualcomm and MediaTek are some of the companies made familiar with proposed changes to pricing.

It will surprise no-one that those customers aren’t happy. They have all reportedly pushed back on the new pricing arrangements.

The question is, what is their alternative? At the moment, not much. However, rivals to the ARM architecture do exist, including SiFive.

It is already valued at over $2.5 billion, based on its most recent round of funding.

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